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Growth and development

No easy fixes on horizon for Denver metro area housing crunch

Workers frame townhomes at the Platte 56 development in Littleton on March 1. According to a new report, housing vacancy rates in the Denver metro area will remain critically low for the foreseeable future.

Even record levels of construction won’t fix the fact that demand will outpace supply in the Denver-area housing market for the foreseeable future, according to a new study that explores the housing affordability crisis across the region.

“Every conversation seems to focus on one issue or another, but the bigger picture is much more complex,” said Phyllis Resnick, the lead economist at the Colorado Futures Center, a Colorado State University-based public policy center that studies fiscal issues in the state. She co-wrote the report, titled “Factors Impacting Housing Affordability,” with Jennifer Newcomer at the behest of Shift Research Labs, the investigative wing of the Piton Foundation,a Denver-based philanthropic organization that seeks to improve the lives of low-income children and families.

“People say `If only we fixed the construction defects law, or if only we had more construction laborers, we could bring supply in line with demand,’ but there’s not one low-hanging fruit that will affect the trajectory,” Resnick said.

The report looked at the availability of housing in the rental and sales markets in the Denver metro area, using data ranging as far back as the 1980s.

The report, released in January, looked at a variety of factors affecting the housing market, including market trends, consumer preferences, labor availability and productivity, regulatory frameworks, land availability and materials costs, but also took a status report of what residents are experiencing. The housing climate is such that many prospective renters and buyers are feeling priced out of the market, with various fixes proposed by lawmakers, such as developer incentives, unlikely to have an appreciable impact anytime soon.

Half of renters statewide spend more than 30 percent of their income on housing, the report found, a situation economists call “cost burdened.” Wages statewide have climbed 11.4 percent since 2011, but average Denver-area rents are up 46.2 percent in the same period. Low-wage jobs increased at about twice the rate of high-wage jobs between 2001 and 2015, but most new housing is aimed at high-end buyers.

Housing vacancy rates are likely to stay around 1.5 percent for the foreseeable future, according to the report, below what industry experts call a healthy rate of 5 percent.

High demand for short supply saw median housing prices climb more than 10 percent annually in the metro area in January, according to the Denver Metro Association of Realtors. The median sales price of a single-family home hit $416,000 in January, while the median condo price jumped 17.4 percent to $285,000.

A move by developers toward high-end finishes, such as granite countertops and primo appliances, may be driving up housing prices more than raw materials, costs of which have fluctuated little amid the spike in housing prices, according to the report

Bring it on home

High housing costs have far-reaching effects, said Carrie Makarewicz, a professor of urban and regional planning at the University of Colorado Denver.

“The fundamental thing about housing is it’s so crucial to health, social mobility and everyday life,” Makarewicz said. “When housing is disrupted it can weigh on all three of those things. There’s a lot of research showing that people who spend too much on housing cut other things like health care, things for their kids, food and transportation. They might have higher job turnover because they can’t afford long commutes.”

The problem doesn’t affect only low-income residents, Resnick said.

“When we talk about affordable housing, we’re talking about ‘small-A’ affordable,” Resnick said. “We’re talking about simply market-rate. There are people with good jobs who can’t afford to live here.”

High housing costs keep families from putting money into other areas in the economy, the report says, and residents who cram into tight quarters to keep costs down suffer higher rates of illness and depression, and student performance suffers.

Land and labor shortages

Despite the Denver area’s reputation for endless land to grow into, in reality much of that land is not zoned for residential development, and making the switch can be costly and time consuming, the report says.

“We found that on the land side, we have only five years of runway land for development,” Resnick said. “We’re more constrained than we realized.”

On the labor side, a deficit of skilled workers may have an impact, but the general labor pool did not seem to fall short of need.

One surprising finding of the report, however, was that home construction has enjoyed little of the technological advances of other manufacturing processes, with homes still built in largely the same manner as 50 years ago.

“If you think about how we build anything else, like cars, we’ve had enormous productivity advances,” Resnick said. “But there’s been very little in housing, partly because of stigma around manufactured housing. But today it’s great product.”

The fallout of Colorado’s decade-old building defects law, which made it easier for residents to sue condominium builders, is often blamed for slowing the construction of starter housing in the region, but that may not be the whole picture, Resnick said.

“The recession hit not long after the law did,” Resnick said. “Apartments suddenly looked more profitable. You had people who couldn’t buy again because they had foreclosed, and you had an influx of young people who didn’t want to commit to home ownership.”

It’s too soon to know if a legislative fix to the law that upped the threshold to sue developers — signed into law by Gov. Hickenlooper last year — will have an impact, Resnick said.

What can be done?

The bottom line is that housing issues are a simple matter of supply and demand, Resnick said.

“When push comes to shove, we need more housing,” Resnick said. “We’re just not building enough to keep up. Without that, we’ll never fix affordability issues. Getting there is interesting, though. We’ll need a holistic approach.”

Addressing housing affordability issues will take a variety of solutions, said Andrew Abrams, a Realtor at Vision Real Estate who sits on the Denver Metro Association of Realtors’ Market Trends Committee.

“In order to balance affordability, we need more density,” Abrams said. “Finding that balance that works for everyone is hard, because no matter what, somebody has to give something up. That might be the integrity or character of neighborhoods, or it might be developer profits.”

Doing so is critical, Abrams said, because the people being priced out are “the foundations of our communities — teachers, nurses, police and firefighters.”

Other fixes could involve incentives or requirements for developers to offer a percentage of units below market rate, creating trust funds with real estate transfer taxes to be spent on affordable housing, or relaxing height limits and parking requirements.

Not in their backyards

Getting the public to shift their attitudes toward high-density housing could play a big role in easing the problem, said Makarewicz, the urban planning professor.

“There’s still a great opposition to affordable housing in many suburbs in our region,” Makarewicz said. “You have residents who feel like all new development is bad, and they should be able to close the door on everyone who wants to move in behind them and say nobody can come after me unless they’re a millionaire. People have gotten carried away with what they think their property rights entail or permit them to do.”

High housing costs affect everyone, Makarewicz said, as businesses in increasingly high-end areas have trouble finding service workers, or may hike prices to cover turnover costs.

Cities can help by streamlining the approval process, she said.

“Some of the ordinances that suburbs have required are over the top on aesthetics and practices,” Makarewicz said. “All these things we’re making developers do, are they for the good of the community or is it just keeping out residents who can’t pay the higher price because our regulations got so costly?”

Asked to name an upside of the housing situation, Resnick, the report’s author, was silent for a few moments.

“We still have time to address this problem before we become a completely unaffordable region,” she said. “We can learn from other cities, and we can explore alternatives. It’s not too late.”

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